Lift for Savers

Something extra on deposits

Seventy percent of America's capital comes from household savings, yet small savers are discriminated against.

Federal interest rate ceilings limit the payout on their passbook accounts to 5% in commercial banks and 5.25% in savings institutions, which is less than half the current rate of inflation--and much less than a higher-roller gets for investing $ 1,000 or more in a money market mutual fund. The small saver's squeeze is summed up in a Citibank anti-ceiling advertisement: "Deposit $500 with us today and we'll give you back $475 next year."

Last week savers got a powerful lift, and so did the cause of capital formation, when President Carter called for a phasing out of interest rate ceilings. This deregulation would have the additional effect of eliminating the differential between commercial banks and savings institutions. The President also recommended that all federally chartered banks be authorized to offer interest-bearing checking accounts. To offset some of the cost of the higher rates for the savings bankers, who lend out their money at long-term fixed rates, Carter suggested that they should be allowed to 1) make some shorter-term, higher-interest consumer loans and 2) offer home buyers variable-rate mortgages that fluctuate with the cost of money.

Top commercial bankers have campaigned to end the interest rate ceilings and the differential. But savings banks and savings and loan associations will fight fiercely to keep their little competitive extra. Already they are hurting. Outflows from their coffers into higher-yielding short-term securities amounted to more than $2 billion in April. Earnings for savings institutions are expected to be down by 30% or 40% in 1979.

Yet the Carter proposals have wide support from consumerists and legislators.

Congressional action on some or all of them may come quickly. The rates will probably be allowed to rise in steps over a period of years, and there is a good chance that small savers will start to get a fairer share before 1980 is very old.

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